Taking the business pulse of the Upper Valley

Published: February 24, 2012

NHBR's editors met recently at the Courtyard by Marriott in Lebanon with businesspeople from around the Upper Valley to get their take on how the area's economy is faring and what their expectations are for the future.The participants were:Jake Blum, president, Systems Plus ComputersNancy Merrill, director of planning and economic development in ClaremontScott Milne, president of Milne Travel American ExpressMichael Quinn, vice president and commercial banker at Ledyard National BankEvan Smith, vice president and general manager, HyperthermChristine Walker, executive director of the Upper Valley Lake Sunapee Regional Planning CommissionBruce Waters, senior broker with Lang McLaughry Spera Commercial Real Estate Tony White, operations director of the Co-Op Food Stores of New Hampshire and VermontNHBR: Two years ago, when we last held a roundtable in the Upper Valley, the feeling was that, despite the economic turmoil, the Upper Valley was pretty resilient. Do you think that was true?Waters: There's an economic base here -- Dartmouth College and Dartmouth-Hitchcock Medical Center, and it doesn't look like they're going away -- that have been a strength in the marketplace for 200 years.And the third leg of the milking stool is the private sector. Evan can speak to that, but the evidence of the Hypertherms and the biosciences that we have now are always evolving, but clearly have created an atmosphere of success. The economy is strengthened by that third leg and it's really been that way for the past 15 years.But clearly we have been affected. There have been layoffs at the medical center -- unheard of prior to now. But I think the economy has absorbed that, and from my personal point of view there are clear indications that 2012 is on a good start.Walker: There's a lot of synergy in this area. The younger population seems to know that there's something going on here too, which is interesting because we've just got done doing our housing needs assessment and it really looked like there was this drop in the younger population, statistically. Yet I don't know if that's necessarily going to play out, given the things I hear going outside the region about how people talk about what's going on in this region.I can't point to any particular business, there just seems to be the opportunity for business here.Blum: I always used to consider that the Upper Valley was immune to the ups and downs of the national economy. Again, with Dartmouth and Dartmouth-Hitchcock employees being such a large percentage of the population, their incomes are unrelated or pretty steady no matter what happens, and there's a trickle-down of them spending at local businesses. But I did feel the recession that came, but it hit here later, a sort of gradual impact. But because we were always sort of immune, for me at least, it took me by surprise a little bit.I had people canceling orders because other people were canceling orders with them, and things like that. It ripples both ways -- when business is good it comes in, when it draws down it bounces around the community.Smith: Part of the third leg that Bruce was talking about that's somewhat dynamic is the established industry -- Hypertherm and Timken, Thermal Dynamics -- are global companies. Certainly, we weren't immune in 2009. We saw quarter to quarter about a 50 percent drop in business due to manufacturing contraction around the world.We have a no-layoff policy and so that protected the community, but Thermal had recent layoffs of about 100 people. Timken moved part of their production to China. While you see some downsizing, however, that's offset clearly by the biosciences and development of Centerra (Business Park).Still, there are stresses that the medical industry is facing, along with retail, and it will be interesting to see what happens in the next decade.White: I think what has been good is that it's a smaller population in general, so it's not like you hear about thousands of people without jobs. More and more you hear about companies and people who haven't gotten raises for two years because of the economy. I think it has actually changed some behaviors of people, how they spend their money and shop. That's what I see on the retail side of it.You have fuel that goes up to $3.50 a gallon, and people will stop shopping for that week. They don't change their habits, but I think there are some habits that are being changed, buying patterns are being changed.Blum: We had a no-layoff policy, but we didn't know it. It wasn't stated. I have 30 employees, and I probably should have laid off two or three of them, and I didn't. It was a little hard, it's coming back now, but it's almost like a new normal. I think everyone is a little more cautious in where they're spending their money.Milne: We're about half business-to-business and about half consumer so we see it on both sides. I think going into a recession, we gauge it looking at the business-to-business end, and often we find at a beginning of a quarter and travel gets cut -- that's a sign that folks are looking at their numbers and things are going to slow down.My reaction to that is that one of the challenges I think southern New Hampshire and the Upper Valley need to be very aware of is that New Hampshire tax policy is basically raiding economic wealth and activity from Massachusetts and Vermont. At some point, when or if New Hampshire tax policy changes, that's going to turn the Connecticut River from a Berlin Wall to a gateway of economic prosperity on the other side.I don't know if the tax policy is going to change, but sooner or later you can't get all your money from stealing from your neighbors.Merrill: My perspective is a little bit different because I'm a native of Lebanon and was actually mayor in Lebanon. We've seen this Route 120 corridor really change the face of the private sector. Claremont didn't get Interstate 89 with four exits, and most people don't notice it or never noticed it until they had to go down and get their car registered.Something Claremont struggles with is where they fit in that regional kind of context, because they're halfway between Keene and Lebanon. Part of the Dartmouth-Lake Sunapee Region and the Upper Valley Lake Sunapee Planning Commission, and yet you get a sense from both up here and down in Claremont, are we as connected as everyone tells us we should be and if we're not, how can we be even more?Waters: I know exactly what Nancy is saying. When we have a business that needs to show some expansion, and they're fairly a Lebanon/Hanover-centric company, we attempt to try and have them look at some of the great inventory that Claremont has.Where we stumble, quite frankly, is this whole concept of synergy. Companies get scared, especially local companies, about that opportunity to go down there, not because of the real estate that Claremont offers, but because they don't think they can attract enough employees.Nancy tells me there are enough employees down there already, so if you have attrition or lose some employees from a move, then they'll make it up in Claremont, and I buy into that. But it's a difficult chore trying to introduce the idea to top management at some of these companies.Merrill: It is funny, because Claremont is still the biggest city in Grafton and Sullivan counties, and yet people are not aware of that.Walker: At some point there will be that tipping point that it's cheaper to do business in Claremont -- and obviously housing there is significantly less expensive.We just did our housing assessment, and the current average home price in the Lebanon/Hanover area was about $215,000 where if you go to Claremont it was $135,000 -- significant differences in the average sale of the home. At some point it will be just enough to make that business decision to go there.Merrill: The Route 120 commute south has changed quite a lot in five years. I used to be the only one of my staff going north. There are as many cars now going south as there are north. We've got employees traveling both directions now.Walker: In the last 20 years or so, there has essentially been an increase of about 9,000 jobs in the immediate Hanover/Lebanon area. But in Newport, there was a loss of about 800, and in Claremont it was about 900.Yet if you look at where housing was developed, where the housing units were built were not in the same location as where that job growth is. People are coming from surrounding areas.Quinn: I once did a whole bunch of research around that topic, and one of the things that we found is people choose to live here. They don't live in the Upper Valley because that's where all of the jobs are, in finance or engineering or anything else. They choose to be here.What is the current state of the region's construction and real estate industry?Waters: It's very obvious, and not even anecdotally, the residential construction industry has suffered dramatically. Even for those companies that were starting to develop housing under workforce housing initiatives have struggled -- some actually went bankrupt. It's a positive for the Upper Valley marketplace that other developers are coming in with lower bases so they can now come along and build housing on predetermined subdivisions that actually have been coming off the market at a lower level than when they would have had to come off the market five years ago. From the workforce housing point of view, that's good.On the commercial side of things, once again you have to go back to Dartmouth-Hitchcock and some of the other industries. There is tremendous construction growth going on right now. The large DHMC clinic building that they're building, the expansion of 20,000 square feet to the Dartmouth Regional Technical Center, the incubator growth, you've got the visual arts center being built in downtown Hanover. There's tremendous activity in terms of that type of growth.Smith: What Bruce is referring to is about a 150,000-square-foot factory in R&D and the customer service center that Hypertherm is building. That facility would accommodate about another 500 people. We had plans in the coming year for about 100, but hiring in the end is not dictated by plans but by actual facts as the year progresses.When we built that facility we were also evaluating Claremont and weighing the factors cited by others in the room here today. We really do value maintaining a cohesive hard value chain, in terms of the interactions of our facilities and transfer of goods, but also the soft value chains, in terms of interactions between people and the ability for us to move quickly between facilities and engineers working with manufacturing people.Has Hypertherm found it difficult to get trained employees?Smith: We're at a scale today that we have very low turnover -- less than 5 percent annually. But at our scale, even that amount of turnover requires a lot of bringing in new associates.Today to get qualified CNC machinists, we have largely had to undertake training them ourselves, so we developed our own technical training institute. We put 100 people a year or more through that. It's a nine-week training course, and we've invested several million dollars in that facility in staff and equipment. We do have some state grant and federal monies to support that, but that's had to become a regular commitment, and we're basically retraining under-employed people from both the Upper Valley and elsewhere looking for a steady and reliable job with some upside.How does the real estate market affect your workforce?Smith: I think in the manufacturing area of our associate base, the main issues are transportation and cost of living. That was true before 2008 and it's still true today.When it comes to professionals, we're recruiting from around the country and really around the world. Finding dual-income families coming into the area, both making sure there are job opportunities for multiple members of the family but also the shock effect of local real estate prices and schooling always comes into that as well. On the other hand, Money magazine put Hanover as the No. 6 place to live in the country. It helps in the attraction of people.Walker: In 2008, when some of the real estate market was really struggling, there was sort of a market adjustment in home ownership prices, but there wasn't that same adjustment in rental units. There's been a lot of rental units that have come onto the market, and there seems to be a higher demand for those rental units in this immediate area.White: I just want to say we went through exercises just a few weeks ago just talking about and having a discussion about staffing and struggles with staffing. We start talking about housing. We have five employees who live in Hanover -- that's it. Everybody else lives outside of Hanover and just can't afford to live there.You mentioned Springfield. I can think of a dozen employees that lived in Lebanon over the past 10 years that moved to Springfield. We're seeing a lot of that happening. People are moving out. I think that's our biggest struggle. People are having a hard time, the cost of buying a home in some circumstances would be more affordable than what they're paying for rent for apartments right now, but because of the credit market it's really hard for them.Walker: The housing cost burden as a measure of the percentage on what a person spends on housing compared to their other expenses is larger in this immediate area, but it's really significant for people 25 and under. They are spending a significant portion of their income on housing alone, and that's another stress.Waters: I have a slightly different way to talk about housing in some ways as it relates to continued growth and the economy of the Upper Valley.I'm always amused with certain people when we have discussions about the idea of recruiting companies to the Upper Valley where you relocate a 150-person company from Boston or Atlanta or wherever. That's just not going to happen, quite frankly, simply because of the housing in terms of value.The growth of the Upper Valley is what I refer to as organic growth, developed by those types of entrepreneurs that had an idea, started it in their own house, and all of sudden got to a point where they needed one or two employees, and then they rent something. They start to grow.Quite frankly, the story is told a hundred times a day in the Upper Valley about Evan and his colleague Dick (Couch) where they start Hypertherm in a garage 35 years ago. That story can also be told about many others. I've seen that it is a lot easier to start a company in the Upper Valley and then grow, because people already have their housing, their kids are in the schools, they have relationships with banks, they have a second income coming in from a spouse.At the same time, to bring in 150 people brand new is very difficult. GlycoFi, which is now owned by Merck, started with one individual, one idea. It has grown and now is expanding and staying in the Upper Valley. To bring in a GlycoFi with 40 or 50 employees from Boston would have been almost impossible.From your perspectives, how do you define the "Upper Valley"?Quinn: I'd say from our perspective, we have branches that are concentrated in the Hanover/Lebanon area. We have one in Lyme and one down in New London. Technology at the same time has made it much more convenient for us to serve customers sort of within a broader circumference around that platform.Our fundamental footprint is what we would call and generically being agreed to as the Upper Valley, but there's still the capacity of technology to do business with other people.Walker: (Former New Hampshire Agriculture Commissioner) Steve Taylor has a wonderful presentation of where the term "Upper Valley" came from.Merrill: It was a newspaper. The Valley News and the Eagle-Times were fighting over what district they were going to be in. Walter Paine, publisher of the Valley News, coined the term "Upper Valley."Walker: I'm from St. Johnsbury, Vt., and that's the Northeast Kingdom, but you ask someone to define where the Northeast Kingdom is, and everyone is going to give you a different geographical border.Waters: Typically the way I describe it, I say well, it's the upper valley of the Connecticut River, and therefore, if that's the case, you come through the Pioneer Valley, over the hill and you're in Brattleboro, and that's really the upper valley of the Connecticut River, so you can almost include Brattleboro in that definition.Not being so silly about it, we typically push it up a little bit further, but I always just say it's the upper valley of the Connecticut River.Smith: It is interesting to define it as a retail catchment area than let's say as an employment catchment area. I think people will travel farther on a daily basis for a job than they will for retail, and we draw people from a good hour radius.White: We look at our membership base, and it's amazing how far-reaching the membership is. We look at co-ops throughout the country, with members that are really from around five or six towns. Here, we have hundreds of towns in our membership database. It's unbelievable how people will travel to come to the Upper Valley.Blum: I have a funny anecdote about an employer in terms of people commuting. The company was originally in Brattleboro, Vt., and they got a grant to move to Greenfield, Mass., to create jobs. They moved there, and all the same employees just drove there. Three or four years later, they moved back to Brattleboro, then they moved to Chesterfield, N.H., but the same people kept working there, and they kept getting money from the different states. Everybody would just drive to work wherever it was.The last time we held an Upper Valley roundtable, there was a discussion about the airport in Lebanon.Smith: I started at Hypertherm 20 years ago and I used to use that airport with some frequency, but I haven't in 15 years. Cape Air is bringing back some attraction there for simple routes to Boston or New York. I think the airport has suffered some with the consolidation of routes and airlines cutting back.Milne: We were just involved in putting together a 40,000-square-foot FedEx ground facility in a place called Plaza Heights, which is right next to the Lebanon airport. I thought originally, "Wow, this is going to be a great mix." They'd bring in medium-size planes, load them up, bring them down to Memphis. But there is no way that they would even consider that.They take the shipments and put them in trucks and bring them down to Boston actually. Then it goes to Memphis. Then it comes back to Boston and then back up to the Upper Valley. If you were going to send a FedEx package to a business in Lebanon, it literally goes from here to Boston to Memphis, back to Boston, to Lebanon in a truck.Unfortunately, I think we have some great land inventory for development up around the airport. Some would say it's environmentally sensitive, but nevertheless there is some opportunity up there for growth that could have a synergistic opportunity with the airport. It's going to take a lot of work and certainly not something that's going to stimulate the economy tomorrow.Merrill: Lebanon airport's importance really is in general aviation. It brings in a lot of corporate flights. The commercial piece remains substantial and heavily subsidized.Milne: Bruce was talking about trying to attract 30, 40, 50 people and companies to the Upper Valley and how it tough that is. I can count over six companies that have left the Upper Valley in the last 15 years because of the difficulty in accessing travel out of the Upper Valley.I think the challenge is that the airport ended up being owned by the city of Lebanon rather than being a regional airport. Then you turn it into land development rather than an economic tool for developing commerce.Cape Air's service is great, but the airport is key to economic development. The story that I recall is Business Express was upgrading at the time, and it used to be a big complaint that there were 19 Beech aircraft flying out of Lebanon. Business Express was going to come in with these twin engines, which 15 to 20 years ago was a pretty good upgrade. The economics of Lebanon was that if you do those upgrades you have to have a fireman there to watch it land rather than just have someone on call to watch it. It cost 200 bucks a landing.Business Express would go around and say, "Our highest landing fee in our whole network is in Lebanon," because Lebanon used it as a profit center rather than an economic development mechanism.I think the airport is trying hard, I think the Cape Air thing is good, that New York service is very good. I have an office in White Plains. I can leave my house at 10 of 6, be at my office in White Plains at 8:30. I can be in midtown Manhattan at 8:45 or 9, if you're lucky. White Plains from Lebanon.When it comes to the airport, I think as people use it, they become big advocates for it.What do you think things are going to be like in the Upper Valley in a couple of years?Milne: Our office in the Upper Valley is essentially on Route 12A, and we see the changes there as positive. The 12A hassle is more of a hassle to employees -- not in a bad way, but it's more of an issue for employees than it is for customers. We see there to be some good infrastructure issues going on.I think the leisure travel spend for most people, if you're not unemployed or not in a real hardship situation, becomes almost like a meal. People plan on traveling -- it's just a question of how much you're going to spend.Waters: I've been here 30 years and beyond, and in the Upper Valley, it's definitely more of a journey than a race. The continued quality growth that we see now will continue, whether it's two years or 10 years or 20 years. I don't think there will be any major or huge event that's going to explode the market, but we're going to continue to work as good citizens, as a region with Christine's help, and start to identify where this quality growth is coming from.From a commercial point of view, there's about 1.5 million square feet that is in the pipeline, permitted and ready to go if we had the demand. The problem is that our demand is only about 50,000 square feet a year. From that point of view, we have about a 10-year inventory or better of projects that could handle the growth.But it's going to be slow for various factors -- infrastructure, housing, all of that -- but it is going to continue to grow.White: I think we're pretty optimistic as a co-op that tries to see a larger share every year of high-quality, local foods. There is an amazing amount of cattle, pork, chickens, produce farms. And there's about a dozen groups that are trying to create slaughter facilities so we can stop bringing animals in from all over the U.S.I think the consumer and the education base in the Upper valley is really high, and I think there's a large percentage of our customers that want to start thinking about supporting local, but also supporting where their food comes from. It's a bigger issue for us, and we're in a good position in the Upper Valley for people to embrace that. It's amazing how much of that is going on.Walker: I see a lot of change and shifting happening. One of the things we really haven't talked about and I hate the term, but I don't really know how else to get the concept out there. There is a tremendous amount of what people term as social capital. There's a lot of civic engagement. There's a lot of people who are participating and trying to do problem-solving on a regional basis -- people are engaged in a manner that I don't necessarily see in other places in the country.Blum: Our challenge is distinguishing ourselves from all the different channels that are available for the consumer -- 12A, the Best Buys, Staples, buying things on the Internet, mail order and that type of thing. I think our particular approach is to blend it with local and really professional service and for people who see the value in that.The challenge for us is in getting the right mix, the right formula, and we think we're on the right path. I think there is a lot of pent-up demand in businesses, especially from the recession. The ones that really invest in the right technology seem to be more successful.Quinn: It's gratifying to hear Jake and some other comments about pent-up demand. At Ledyard, we're seeing some of the pent-up demand start to turn into our bread and butter, which is lending our depositors money. We're seeing a little bit more deal flow, we're hoping we'll continue to see more as some of these things come to fruition and more people are hired and work in the community.Smith: I would probably largely echo Bruce. It's a pretty sticky place for business entrepreneurs who start business here, I think it's an attractive area for investment for many of those reasons. Dartmouth is sort of a source for entrepreneurs and continuing talent. It's an attractive area for alumni to invest, attractive place to live.It will be interesting to see some of the resistance to growth and development that we see in parts of the Upper Valley and see how that plays out. I graduated from Dartmouth in '86, so just the way the area has developed is sometimes unpredictable, but in pretty steady ways -- I think those forces are at play today and are likely to continue into the foreseeable future.Merrill: I think Claremont's stated mission of economic development and growth is going to continue. We have done everything we can to open the doors and welcome people. We see job creation expanding the tax base, and that will continue over the next two years. It's been a great catalyst for Claremont and we'll keep moving on that route.

This article appears in the February 24 2012 issue of New Hampshire Business Review